Can the U.S. create 8.8 million jobs by boosting immigrant start-ups?

Monday

Dec 3, 2012 at 9:45 AMDec 8, 2012 at 2:36 PM

By Peter S. Cohan WALL & MAIN

If you listened to the political rhetoric before last month's presidential campaign, you could be forgiven for thinking that the president was personally responsible for the precise number of jobs created in the U.S. economy each month. And if that number was disappointing, you could use that disappointment to fuel your decision to throw the president out of office.

As we now know, the side that was making that argument got a Bronx cheer – a mere 38.3 percent of the 2012 electoral vote. That's in part because many voters realized a simple reality, that government does not create jobs, companies do.

More specifically, the Kauffman Foundation has found that young, fast-growing firms are the biggest job creators. According to its report, the so-called “gazelle” firms — aged from three to five years — account for under 1 percent of all companies but generate about 10 percent of the new jobs each year. The typical gazelle firm adds 88 jobs a year — 44 times the average firm – and ends up with between 20 and 249 employees.

These companies do not hire because the economy is doing well. The most dramatic example of this that comes to mind is Portugal's Critical Software. Portugal's economy has been shrinking at a 4 percent annual rate as it took austerity measures in conjunction with an IMF bailout. Yet in 2011, Critical Software planned to boost its employee count by 40 percent in 2012.

So the key to creating jobs, if anyone cared about that, would be to encourage more start-ups. And due to limits on the number of visas available — that let immigrants who come to the U.S. to study subjects like engineering and science — many of them leave the U.S. to start companies elsewhere.

Those immigrants are big job creators. According to the Kauffman Foundation, 25.3 percent of technology and engineering companies started in the U.S. from 1995 to 2005, at least one key founder was foreign-born. These immigrant-founded companies produced $52 billion in sales and employed 450,000 workers in 2005. The majority of these immigrant key founders came from India, the UK, China, Taiwan, Japan, and Germany.

The Kauffman Foundation proposed some ways that the U.S. could encourage more such start-ups. One would be to pass the Startup Visa Act introduced in the U.S. Senate in 2010 that would create a new visa for immigrants who can raise $250,000 for their startup company. Another would be to expand the existing EB-5 visa program for immigrant investors.

If the U.S. allowed, say, 100,000 more engineering and science students to study here and stay to start businesses, the Kauffman statistics suggest that they could start companies that would add 8.8 million new jobs (100,000 new companies times 88 jobs/company).

That would not put all 12.5 million Americans looking for jobs back to work, but it would go 70 percent of the way.But let's say that Startup Visa Act never passes. Then what? Well you could try creating a program to encourage more of our immigrants to start businesses here through an entrepreneurship program at a top U.S. university.

And that's what the U.S. Citizenship and Immigration Services (USCIS) did last month. On November 28, USCIS Director Alejandro Mayorkas announced an addition to its USCIS Entrepreneurs in Residence (EIR) initiative by launching “an online resource center” -- Entrepreneur Pathways that helps entrepreneurs who want to start a U.S. venture to navigate the immigration process -- at the Martin Trust Center for MIT Entrepreneurship in Cambridge.

I think Mr. Mayorkas is on to something – he wants to keep entrepreneurial immigrants in the U.S. As he said, “Through our innovative Entrepreneurs in Residence initiative, we are working to realize our current immigration system's full potential to attract and retain startup enterprises that promote innovation and spur job creation in America. The first phase has already led to unique improvements in our programs and enabled us to better serve immigrant entrepreneurs.”

The EIR initiative was launched earlier in 2012 at an Information Summit in Silicon Valley. As EIR team member and Vice President of Strategic and Community Development and Chief Ecosystem Builder at SoftLayer Technologies Paul Ford, said, “This initiative is so innovative and progressive. It's all about finding pragmatic solutions. USCIS's officers and leadership clearly want to deliver quality services to people who want to invest, work and live in the United States. They have embraced our input and did something with it.”

The EIR initiative also includes the following elements:

• A training workshop to help “USCIS employment-based immigration officers” to advise immigrants on how to start companies;

• A specialized immigration officer team to handle entrepreneur and startup cases;

• A special immigration process – involving “Modified Request for Evidence templates for certain nonimmigrant visa categories” to boost the odds that immigrant entrepreneurs can get citizenship; and

• A plan for “quarterly engagements with the entrepreneurial community to ensure that USCIS stays current with industry practices.”

The EIR program is a good idea. But it would be even better to pass the Startup Visa Act because it would let proven entrepreneurs start their businesses here instead of taking them outside the country where others get the benefit of the training those entrepreneurs got in the U.S.

Peter Cohan of Marlboro heads a management consulting and venture capital firm, teaches business strategy, and is the author of 11 books – most recently, “Hungry Start-up Strategy: Creating New Ventures with Limited Resources and Unlimited Vision.” His column runs Sundays and Wednesdays on telegram.com. His email address is peter@petercohan.com.